The proposed diesel price decontrol may come sooner than expected with a special scheme to insulate farmers from its adverse impact through a cash subsidy. Initially, state governments will be responsible for delivery of the subsidy, the cost of which will be borne by the Centre. When the Aadhaar technology platform becomes operational, it will be used for transferring the subsidy.
The UPA government is acutely aware of the need to make the diesel price decontrol palatable to allies like the Trinamool Congress and the Samajwadi Party. At the same time, there is a view that differential pricing of diesel could lead to market distortions and hence the move to provide farmers a fixed amount of cash subsidy instead.
Achieving the Centre?s fiscal deficit target of 5.1% of GDP for 2012-13 is heavily dependent on diesel price decontrol and building a political consensus for this is high on the government?s agenda.
Although the exact quantum of cash subsidy for farmers is being worked out, sources said given the current level of diesel consumption by farmers, this could be around R11,000 crore. About 14% of diesel consumption is in the agriculture sector.
Currently, oil companies sell diesel at government-set price, losing R13 a litre. This fiscal, oil companies will lose more than R75,000 crore in diesel sales alone.
The R75,000-crore loss would be about three-fifth of the total revenue loss they would incur on the sale of diesel, LPG and kerosene at regulated prices.
In their post-Budget media interactions, both Prime Minister Manmohan Singh and finance minister Pranab Mukherjee had said they would try and build political consensus for the same after the Parliament session. The idea is to reduce wasteful consumption of the fuel through free-market pricing.
According to sources, in the case of fertilisers, the government plans to closely monitor the level of sales at 1,30,000 retailers across the country through a mobile-based tracking system, which is accessible to farmers.
Based on this information, fertiliser subsidy will be transferred to the retailer, leaving little scope for faking sales or diversion of the commodity to the black market. In the subsequent phase, subsidy will be transferred directly to the farmers having the proposed unique identification number called Aadhaar. Mukherjee had said this plan would be implemented during 2012-13 to benefit 12 crore farmer families.
Partial decontrol of two phosphatic and potassic fertilisers in 2010 have increased the cost of farming and, of late, there have also been complaints of shortage of these fertilisers.
The Budget promised to restrict the total subsidy on food, oil and fertilizers to under 2% next fiscal, apparently on the assumption that the decontrol of diesel and urea, the only major fertiliser remaining under full price control, could be implemented in 2012-13. The government gave fertiliser subsidy of Rs 67,199 crore this fiscal and has allocated Rs 60,974 crore for the next. More than half of this outgo is on urea.